Wolters Kluwer: 90 percent of legal departments reduced their provider relationships in 2020
Last year produced the biggest shakeup in the outside legal services market since the Great Recession, as 90 percent of corporate legal departments (CLDs) reduced their active provider relationships, and 16 percent of attorney-client relationships that existed in 2019 were paused in 2020.
It emerges from LegalVIEW Insights report published by Wolters Kluwer ELM Solutions. It is the first of the company’s quarterly reports in 2021, analyzing emerging legal industry issues using data from its LegalVIEW Data warehouse. The report, compiled by Nathan Cemenska, director of legal operations and industry insights for Wolters Kluwer ELM Solutions, focuses on corporate legal department (CLD) law firm vendor usage.
Due in part to the 2020 COVID-19 pandemic and its effect on the economy, every law firm segment was impacted. From the largest, most prestigious firms to solo practitioners, every group saw a significant number of attorney-client relationships put on hiatus. The mean number of outside providers actively serving the typical corporate law department declined by 12 percent year-over-year, and the median number of providers dropped by 16 percent compared with 2019.
«There’s a long-term trend in the legal industry of corporate law departments converging their business into fewer and fewer suppliers. The pandemic seems to have accelerated this trend, with corporate law departments reducing their supplier count by 16 percent– the greatest drop in many years. We don’t know how many of those relationships are going to return in 2021. In fact, there are reasons to think some corporate law departments will use the pandemic as an opportunity to rebalance their supplier mix the same way that people rebalance their 401k», Cemenska said to inhousecommunityus.com.
In the last six years, approximately 32 percent of CLDs sent half or more of their work, in dollar volume, to the top 100 global law firms. Some CLDs consistently send 75 percent of their work to those top firms.
«The drop in active client relationships wasn’t equally distributed. The AmLaw 150 to 200 firms were the hardest hit, with almost a 19 percent reduction in active clients, while the AmLaw 11-20 firms lost only 7.1 percent of clients. But no matter what AmLaw bucket you look at, law firms had a significant number of client relationships become inactive between 2019 and 2020», he added.
Most CLDs consolidated 80 percent of their work into 20 percent or fewer of their vendors – a recognized best practice that reduces administrative overhead and creates opportunities for volume discounts. In 2020, larger law firms tended to experience market share growth, while smaller firms lost market share. Conversely, unranked law firms saw their market share decrease by more than two percentage points, year-over-year, and they have lost four percentage points overall since 2016.